- Australia’s CPI increased by 0.2% in the fourth quarter, missing estimates.
- Traders are pricing an 80% chance of an RBA rate cut in February.
- Market participants are preparing for the Fed policy meeting.
The AUD/USD forecast shows higher expectations for an RBA rate cut in February due to cooling inflation in Australia. Meanwhile, the dollar held firm after US tariff signals and ahead of the Federal Reserve policy meeting.
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Data on Wednesday revealed that lower housing costs contributed to a decline in price pressures in Australia. The CPI increased by 0.2% in the fourth quarter, missing estimates of a 0.3% increase. High inflation has kept the Reserve Bank of Australia cautious despite a global wave of rate cuts. However, recent data has shown some easing, which has raised expectations for a rate cut. After the inflation report, traders were pricing an 80% chance that the RBA would start its easing cycle in February. As a result, the Australian dollar dropped.
Australia’s currency had remained fragile since Monday when reports of a new Chinese AI model dampened risk appetite. Meanwhile, the dollar recovered on Tuesday as the risk of import tariffs increased with Trump’s remarks. On Monday, the US president pointed out specific goods that would attract duties, including pharmaceuticals. Moreover, the US Treasury Secretary has called for a universal tariff that will increase monthly.
Elsewhere, market participants are preparing for the Fed policy meeting later on Wednesday. The central bank will likely keep rates unchanged. Moreover, policymakers might assume a cautious tone due to tariff uncertainty.
AUD/USD key events today
- Federal Funds Rate
- FOMC Statement
- FOMC Press Conference
AUD/USD technical forecast: Bears trigger a channel breakout
On the technical side, the AUD/USD price has broken out of its bullish channel, indicating a bearish shift in sentiment. Bears took charge when the price retested its channel resistance. They pushed the price below the 30-SMA.
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At the same time, the RSI dropped below the 50 level, suggesting stronger bearish momentum. Soon after, the price broke below the channel support level. If this is a false breakout, AUD/USD will soon reverse to reenter the bullish channel.
On the other hand, if bears are ready to take charge, the price will target the 0.6200 support level. A break below this level will pave the way to the 0.6150 level. Additionally, bears must start making lower highs and lows to confirm a downtrend.
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